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Farad Investment Management

FARAD I.M. improves its sustainable scoring system



Gianluca D’Alessio, senior portfolio manager FARAD I.M.

Gianluca D’Alessio, senior portfolio manager FARAD I.M.

For investors, it can be difficult to assess key Environmental, Social, and Governance (ESG) metrics of a portfolio. That is why Luxembourg-based FARAD I.M. has created a new and improved version of their GreenEthica Sustainable Scoring System (“GSSS”).

FARAD I.M. originally developed its scoring system in 2017, just before launching a new fund called Best of SRI, which invests in sustainable funds. Fast-forward to 2021, the demand for sustainable finance has grown by leaps and bounds, but the tools to assess sustainability have not always kept up to speed. 

The new version of GSSS aims to offer customers a way to assess key ESG portfolio metrics, both in absolute terms and relative to a benchmark, with a specific focus on its alignment to the 17 Sustainable Development Goals (“SDGs”), says Gianluca D’Alessio, senior portfolio manager at FARAD I.M..

Today, one of the biggest problems is the lack of a 100-percent clear taxonomy,“ he said. “This affects how well investment managers can identify, collect, and assess key ESG metrics and compare various investments.”

The problem is not the number of ESG metrics that some companies are disclosing, a number that is actually quite large. The problem is that there is no uniformity among these metrics.

In that sense, being able to understand which are the important metrics and how to compare them with each other is crucial,” Mr. D’Alessio said. “We do not merely collect ESG data. We do not merely reshuffle data in a comparable way. We analyze a portfolio’s investments in regard to their alignment and positive contribution to the 17 SDGs.”

Mr. D’Alessio says GSSS allows clients to concretely understand if and how a portfolio is contributing to sustainable investments involved, among others, to circular economy, climate change, or energy transition.

A client could have a portfolio with 20 percent financial performance YTD which is contributing 10 percent to energy transition projects,” Mr. D’Alessio said. “But on the other hand, he should be aware of how much it is polluting the world in terms of direct and indirect carbon emissions with ‘X’ tons of CO2 per year.”

The new version is also more scalable and quantitative than the previous one, which, importantly, means that it is less subjective. It allows for the assessment of sustainability at the portfolio level as well as at the level of single holding.

GSSS also offers other useful features, such as being able to compare portfolio and single holding scores with their relative benchmark or category score. An investor, asset manager or company can also look at specific sustainable metrics, such as for carbon footprint, and they can also receive major controversies analysis.

The need for such systems has grown in the wake of the implementation of the EU Sustainable Finance Disclosure Regulation (SFDR), which aims to make the sustainability profile of funds easier to understand and compare.

GSSS service has been particularly welcomed by smaller businesses which might not have the human and technical resources to develop their own ranking systems. FARAD I.M., as third-party asset manager and a Professional of the Finance Sector (PSF), aims to act as an active player and a leader in Luxembourg in the transition towards a more sustainable way of doing business within the investment management industry,” Daniel Capocci, FARAD Group General Manager, recently told Paperjam.

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